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Loans Payable
 6 Months Ended
Dec. 31, 2025
Debt Disclosure [Abstract]  
Loans Payable

Note 11 – Loans Payable

 

Long-term Convertible Notes

 

On December 22, 2025, the Company entered into a Securities Purchase Agreement (the “SPA”) with an accredited investor (the “Investor”), providing for a convertible note facility in the aggregate original principal amount of up to $30,000,000 (the “Convertible Note Facility”). At the initial closing on December 23, 2025, the Investor purchased (i) a Series A Senior Secured Convertible Promissory Note in the original principal amount of $5,184,024 (the “Series A Note”), issued in a private placement under Rule 506(b) of Regulation D, and (ii) a Series B Senior Secured Convertible Promissory Note in the original principal amount of $1,815,976 (the “Series B Note,” together with the Series A Note, the “Convertible Notes”), issued in a registered direct offering pursuant to the Company’s effective shelf registration statement on Form S-3.

 

The total original principal amount of the Convertible Notes issued at the initial closing was $7,000,000. Pursuant to the SPA, the parties will close on an additional Series A Convertible Note of approximately $2,000,000 (the “Additional Series A Notes”), to be issued upon the effectiveness of a resale registration statement, bringing the total funded amount to $9,000,000.

 

The Notes were issued at a 6% original issue discount (“OID”), resulting in gross cash proceeds to the Company of $6,580,000. After deducting placement agent fees of $394,800 and legal and other transaction expenses of $150,000, the Company received net proceeds of $6,035,200.

 

The Convertible Notes bear interest at a rate of 10% per annum (increasing to 17% per annum upon the occurrence and during the continuance of an Event of Default), with interest payable monthly on the first Trading Day of each calendar month commencing January 1, 2026, in shares valued at the Alternate Conversion Price or, at the Company’s election, in cash. The Convertible Notes mature on December 23, 2027.

 

The Convertible Notes are convertible into shares of Common Stock at a fixed Conversion Price of $17.70 per share, subject to adjustment. The holder may elect to convert at an Alternate Conversion Price equal to the lower of (i) the Conversion Price or (ii) the greater of the Floor Price or 95% of the lowest daily VWAP during the seven consecutive Trading Days preceding conversion. During an Event of Default, the Alternate Conversion Price becomes the lower of (i) the Conversion Price or (ii) the greater of the Floor Price or 90% of the lowest daily VWAP during the ten consecutive Trading Days preceding conversion. The Floor Price is $2.27 per share, subject to downward adjustment every six months to the lower of the then-current Floor Price or 20% of the trading price. On March 23, 2026, the Conversion Price automatically resets to $14.16 if then above such level. The holder is subject to a 4.99% Beneficial Ownership Cap on outstanding Common Stock, which may be increased to 9.99% upon 61 days’ notice.

 

The Convertible Notes contain the following redemption features: (i) upon an Event of Default, the holder may require redemption at 115% of the outstanding Conversion Amount; (ii) upon a Change of Control, the holder may require redemption at 110% of the Conversion Amount; (iii) upon a subsequent equity financing, the holder may require redemption of up to 20% of net proceeds at 110%; (iv) upon certain asset sales (only if Crypto Collateral Value falls below 150% of outstanding principal), the holder may require redemption of up to 20% of net proceeds at 110%; and (v) the Company may optionally redeem at 110% of the Conversion Amount (or 115% during an Event of Default period). The Convertible Notes also contain a modified full-ratchet anti-dilution provision whereby if the Company issues shares below the then-effective Conversion Price (other than Excluded Securities), the Conversion Price is automatically reduced to 115% of the new issuance price.

 

The Convertible Notes are senior secured obligations of the Company, collateralized by all cryptocurrency digital assets of the Company and certain of its subsidiaries pursuant to a Security and Pledge Agreement. The Convertible Notes are guaranteed by all subsidiaries of the Company.

 

In connection with the issuance of the Convertible Notes, the Company entered into (i) a Security and Pledge Agreement, dated December 22, 2025, granting the Investor a first priority security interest in the cryptocurrency digital assets of the Company and its subsidiaries; (ii) a Guaranty, dated December 23, 2025, pursuant to which all subsidiaries of the Company jointly and severally guarantee the Company’s obligations under the Convertible Notes; and (iii) a Registration Rights Agreement, dated December 23, 2025, requiring the Company to file a registration statement within 30 days of issuance to register the resale of Series A Conversion Shares and cause such registration statement to be declared effective within 60 days, with liquidated damages of 1.5% of the holder’s original principal amount payable upon failure to meet these deadlines.

 

Accounting and Fair Value Measurement for Embedded Derivative Liability

 

The Company evaluated the embedded features within the convertible note in accordance with ASC Topic 480 and ASC Topic 815. The Company determined that the following embedded features constitute a compound derivative liability requiring bifurcation from the debt host: (i) the Conversion Option, which includes multiple pricing mechanisms (fixed conversion at $17.70, Alternate Conversion Price based on 95% of lowest 7-day VWAP, Event of Default Conversion Price based on 90% of lowest 10-day VWAP, the Floor Price, the March 2026 reset, and anti-dilution adjustments); (ii) Interest Payment in Shares at the Alternate Conversion Price; and (iii) cash-settled put options arising from various redemption features (Event of Default at 115% premium, Change of Control at 110% premium, Subsequent Placement at 110% premium, and Asset Sale at 110% premium).

 

These features are not clearly and closely related to the debt host, meet the definition of a derivative, and do not qualify for the derivative accounting exemptions. Accordingly, the embedded features were bifurcated as a single compound derivative liability measured at fair value, with subsequent changes in fair value recognized in the condensed consolidated statements of operations.

 

The initial fair value of the compound embedded derivative liability was determined using a Monte Carlo Simulation valuation model, considering various potential outcomes and scenarios. The model used the following assumptions: (i) dividend yield of 0%; (ii) expected volatility of 141.41%; (iii) risk-free interest rate of 3.48%; (iv) term of 2.0 years; (v) fair value of the common shares of $10.46 per share; and (vi) various probability assumptions.

 

At December 31, 2025, the Company remeasured the derivative liability using updated assumptions: (i) dividend yield of 0%; (ii) expected volatility of 140.88%; (iii) risk-free interest rate of 3.47%; (iv) remaining term of 1.98 years; (v) fair value of the common shares of $7.48 per share; and (vi) various probability assumptions.

 

Subsequent changes in fair value are recognized in the statement of operations for each reporting period. The issuance costs for the Convertible Notes, along with the fair value of the bifurcated embedded derivative liability, were collectively treated as a debt discount. Upon initial recognition, the total debt discount was $2,577,500, consisting of the fair value of the bifurcated derivative liability of $1,612,700, the original issue discount of $420,000, and debt issuance costs of $544,800. The debt discount is being amortized to interest expense over the two-year term using the effective interest method at an effective rate of approximately 23.2%.

 

During the period ended December 31, 2025, the holder converted an aggregate of $100,000 in principal of the Series B Note into 10,948 shares of Common Stock. The conversions were effected at the Alternate Conversion Price on the respective conversion dates. The Company accounted for each conversion as a partial extinguishment of the debt host and related embedded derivative liability, resulting in a loss on extinguishment of $24,100, representing the excess of the fair value of shares issued over the carrying amounts derecognized.

 

As of December 31, 2025, the remaining outstanding principal balance of the Convertible Notes was $6,900,000, consisting of $5,184,024 under the Series A Note and $1,715,976 under the Series B Note. The remaining unamortized debt discount balance was $2,518,469, for a net carrying amount of $4,381,531. Interest expense, including amortization of debt discount, recognized on the Convertible Notes during the three and six months ended December 31, 2025, was $37,787.

 

Long-term loan

 

Asset-based revolving loan

 

On November 12, 2021, the Company entered into a Credit Agreement with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent, issuing bank and swingline lender, for an asset-based revolving loan (“ABL”) of up to $25 million with key terms listed as follows:

 

  · Borrowing base equal to the sum of

 

  Ø Up to 90% of eligible credit card receivables
  Ø Up to 85% of eligible trade accounts receivable
  Ø Up to the lesser of (i) 65% of cost of eligible inventory or (ii) 85% of net orderly liquidation value of eligible inventory

 

  · Interest rates of between LIBOR plus 2% and LIBOR plus 2.25% depending on utilization
  · Undrawn fee of between 0.25% and 0.375% depending on utilization
  · Maturity Date of November 12, 2024

 

In addition, the ABL included an accordion feature that allows the Company to borrow up to an additional $25.0 million. To secure complete payment and performance of the secured obligations, the Company granted a security interest in all of its right, title and interest in, to and under all of the Company’s assets as collateral to the ABL. Upon closing of the ABL, the Company paid $796,035 in financing fees including 2% of $25.0 million or $500,000 paid to its financial advisor. The financing fees are recorded as debt discount and are to be amortized over the three-year term of the ABL as interest expense.

 

Below is a summary of the interest expense recorded for the three and six months ended December 31, 2025 and 2024: 

         
   Three Months Ended December 31,   Six Months Ended December 31, 
   2025   2024   2025   2024 
Accrued interest  $61,793   $66,025   $113,507   $109,170 
Credit utilization fees   8,513    14,583    18,636    36,350 
Amortization of debt discount   –    59,602    –    125,906 
Total  $70,306   $140,210   $132,143   $271,426 

 

On February 16, 2022, in connection with the acquisition of Anivia Limited, the Company and JPM entered into an amendment to the Pledge and Security Agreement, pursuant to which the Company pledged 65% of its ownership interest in Anivia Limited and its subsidiaries.

 

On October 7, 2022, the Company entered into a second amendment to the credit agreement and consent (the “Second Amendment to the Credit Agreement”), originally dated November 12, 2021, as amended, with JPMorgan. The Company entered into the Second Amendment to the Credit Agreement primarily for the purpose of changing the interest rate repayment calculations from LIBOR to the Secured Overnight Financing Rate, or SOFR, which adjustment had originally been anticipated under the terms of the original Credit Agreement. In addition, two of the negative covenants set forth in the original Credit Agreement were amended in order to (i) adjust the definition of “Covenant Testing Trigger Period” to increase the required cash availability from $3,000,000 to $4,000,000, or 10% of the aggregate revolving commitment for the preceding 30 days, and (ii) require that the Company will not and will not permit any of its subsidiaries, after reasonable due diligence and due inquiry, to knowingly sell their products, inventory or services directly to any commercial businesses that grows or cultivates cannabis; it being acknowledged, however, that the Company does not generally conduct due diligence on its individual retail customers.

 

On November 8, 2024, the Company entered into a third amendment (the “Third Amendment”) to that certain credit agreement, initially entered into by and among the Company and its subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent for the Lender and a lender (the “Administrative Agent” or “Lender”), on November 12, 2021 (the “Credit Agreement”). The Third Amendment to the Credit Agreement amended, among other things, (i) the defined term “Aggregate Revolving Commitment” to mean $15,000,000, and (ii) extended the maturity date to “November 8, 2027 or any earlier date on which the Revolving Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof.” The borrowing rate is SOFR plus 2.25% to 2.50% depending on utilization of the borrowing availability.

 

On December 7, 2025, the Company repaid in full the outstanding amount resulting in the termination of the ABL.

 

As of December 31, 2025 and June 30, 2025, the outstanding amount of the ABL, which was classified as current revolving loan payable, including interest payable, was $0 and $3,737,602, respectively.

 

Short-term loan payable

 

On April 8, 2024, the Company entered into an agreement with an unrelated accredited investor (the “Investor”) for an on-demand, unsecured and subordinated loan (“On-demand Loan 2”). Pursuant to the agreement, the Investor agreed to loan the Company the amount requested. The On-demand Loan 2 bears interest at the rate of the Secured Overnight Financing Rate, or SOFR, plus 1.5% per annum. The On-demand Loan 2 is due in 30 days upon receipt of the Investor’s notice of repayment. For the three and six months ended December 31, 2024, the Company recorded interest expense of $0 and $3,733, respectively. As of December 31, 2025 and June 30, 2025, the On-demand Loan 2 had been fully paid off.

 

On July 9, 2025, the Company borrowed $500,000 as a short-term loan (“RP Loan 2”) from an entity owned by Mr. Allan Huang, one of the majority shareholders of the Company. The RP Loan 2 bears no interest and is due upon receipt of request of repayment. As of December 31, 2025, the outstanding balance of the RP Loan was $500,000.

 

On November 24, 2025, the Company issued three promissory notes totaling $2 million (the “Promissory Notes”) in exchange for gross proceeds of $2 million. The Promissory Notes were entered into with certain investors and related parties, including an entity controlled by the Company’s CEO, Chenlong Tan. The Promissory Notes bear 6.5% interest per annum and are repayable upon the earlier of 90 days or the Company’s entry into new financing arrangements. The funds received in connection with the Company’s issuance of the Promissory Notes was used to pay off the Company’s existing ABL with JPMorgan Chase Bank, N.A. (“JPMorgan”).